Prices of oilseed products to recover in 1999/2000

International prices for oilseed products were subject to strong downward pressure during the 1998/99 season (October/September), mainly because of large harvests and abundant stocks. While the decline in prices for oilcakes and meals has come to a halt at the beginning of the current 1999/2000 season, prices for oils and fats - as measured by FAO's price index -dropped further, reaching their lowest level since 1992/93. The decline in oil prices has been caused by unusually sharp, but temporary, increases in palm oil production, as oil palm plantations in Asia recovered from the 1998 weather anomalies. However, towards the end of last year, changes in market fundamentals caused prices for most oilseeds and products to move upward, a trend which is expected to continue for the remainder of the current season.

On average, international prices for oils and fats are anticipated to rise moderately during 1999/2000 as the supply and demand situation is likely to tighten during the course of this year. Total vegetable oil output is expected to expand considerably less than in 1999, which, combined with a healthy rise in global demand, could lead to an excess of demand over production. As a result, total end-of-season stocks as well as the stocks-to-utilization ratio are likely to fall, thus exerting upward pressure on prices.

After declining markedly during the last two seasons, international prices for oilcakes and meals are expected to recover during 1999/2000. The prospective tightening of the soyameal supply and demand situation will be the main factor behind the general price recovery. Although this season's increase in soyameal demand is forecast to remain below that of recent years, global soyameal output is expected to fall short of demand, hence reversing the situation recorded in the last two seasons. In particular, the prospect of reduced supplies and export availabilities in South America and sustained meal demand in several importing countries in Asia as well as in Mexico are expected to contribute to the anticipated supply and demand imbalance. Given these circumstances, world stocks of soyameal and of other oilcakes and meals (including the meal contained in stored seeds) are predicted to fall, thus exerting upward pressure on prices. However, the expected changes in the underlying market fundamentals will not be large enough to cause prices to reach the high levels recorded during the years 1995-1998, mostly due to the anticipated stagnation in import demand in China and the EC and to the prospect of ample supplies and export availabilities of rapeseed meal and fish meal.

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1/ Note on methodology: Almost the entire volume of oilcrops harvested world-wide is crushed in order to obtain oils and fats for human nutrition or industrial purposes and cakes and meals used as feed ingredients. Therefore, rather than referring to oilseeds, the analysis of the market situation is mainly undertaken in terms of oils/fats and cakes/meals. Hence, production data for oils (cakes) derived from oilseeds refer to the oil (cake) equivalent of the current production of the relevant oilseeds, while the data on trade in and stocks of oils and cakes refer to the sum of trade in and stocks of oils and cakes plus the oil and cake equivalent of oilseed trade and stocks.

Production slow down anticipated for the current season

After two seasons of significant expansion in global production of oilseeds, in 1999/2000 output of the seven major oilcrops is forecast to rise to 299 million tonnes, only slightly exceeding last season's level. The expected increase in production would be mainly on account of a record-breaking crop of rapeseed (for the second consecutive year) and of a recovery in global production of cottonseed and copra. Together, these increases would more than offset the decline anticipated in global soybean, sunflowerseed and groundnut production. The rise in rapeseed output is expected to occur in the main traditional producing countries, i.e. the EC, Canada, China and India, as well as in Australia, where production was expanded only recently. The recovery in cottonseed production will be concentrated in the USA and Pakistan, while in the Philippines and Indonesia copra production is expected to recover from the effects of adverse weather conditions in the last two years. Global soybean output is forecast to fall over 3 percent from last year's record level due to reduced production in all major producing countries. Production is expected to drop in spite of further increases in area planted, as the average yield level is anticipated to fall. The drop in global sunflowerseed output would be mainly on account of reduced harvests in the EC and Argentina, while world groundnut production would be lower due to harvest shortfalls in China and India. In India, overall oilseed output is again expected to remain well below the record crop harvested in 1996/97. The on-going contraction in production - after a decade of steady expansion - is due to declining yield levels (caused partly by adverse weather and partly by reduced input use) as well as a significant erosion in domestic prices for oilcrops.

World Production of the Seven Major Oilseeds

1997/98

1998/99

1999/2000
f' cast.

(. . . . . . million
tonnes . . . . . .)

Soybeans

158.5

159.4

154.2

Cottonseed

36.0

33.4

34.9

Groundnuts

29.5

31.9

30.6

Sunflowerseed

24.4

27.3

26.4

Rapeseed

33.8

36.3

41.9

Palm kernels

5.1

5.7

5.8

Copra

5.1

4.1

5.2

Total

292.4

298.1

299.0

Source: FAO

Note:The split years bring together northern hemisphere
annual crops harvested in the latter part of the first year shown, with southern
hemisphere annual crops harvested in the early part of the second year shown.
For tree crops, which are produced throughout the year, calendar year production
for the second year shown is used.

Oils and fats supplies to rise further as opposed to stagnating supplies of oilcakes and meals

Based on the above crop estimates, world production of edible/soap oils and fats in 1999/2000 is forecast to exceed last season's level by about 3 percent (i.e. at a rate close to that recorded in the last four seasons), reaching a record 114 million tonnes. The expansion in total output would be largely on account of a sharp increase in global rapeseed oil production, but also total output of tropical oils is forecast to reach near-record or record levels (the case of coconut oil and palm oil respectively), as plantations have been recovering from the effects of adverse weather conditions in the last two years. Similar to previous years, soft oils1/ are estimated to account for roughly 54 percent of total output of edible/soap oils and fats (41 of which will be soybean oil), while palm oil is likely to increase its share to 19 percent. The anticipated rise in total production and above average stocks at the beginning of the season would cause global supplies of oils and fats to rise by more than 3 percent to 127 million tonnes. At 75.8 million tonnes, world aggregate production of oilcakes and meals expressed in protein equivalent is forecast to fall short of last season's record level. While production of soy, sunflower and groundnut meal is predicted to decrease, the output of rape, cotton, copra and fish meal is expected to rise. Global supplies of meals and cakes in 1999/2000 should increase marginally compared to last season due to higher inventories at the beginning of the current season.

Sustained demand for oils and fats to contrast with slow down in consumption of oilcakes and meals

Total utilization of oils and fats is forecast to increase further in 1999/2000, reaching 114 million tonnes, an increase of 4 percent from the previous season. Relatively low international prices (compared to the average of previous years), combined with the resumption of economic growth in the Asian region and a healthy rise in per capita incomes world-wide, are all expected to contribute to the increase in global demand. With respect to the composition of global consumption, the shares of palm oil and rapeseed oil are expected to rise further this season, while the share of soyaoil, though still the highest in absolute terms, is expected to fall slightly. While most of the increase in utilization is expected to occur in Asia, consumption is also likely to expand in North America and in Western European countries. The growth in utilization of oilcakes and meals is expected to slow down in 1999/2000. Expressed in protein equivalent, global consumption is forecast to increase by 2 percent to 77 million tonnes. Factors contributing to the limited demand growth this season include reduced global meal production and the prospect of rising prices. Most of the increase will occur in rapeseed meal, which is expected to be in abundant supply and therefore attractively priced. In the USA and the EC, which together account for almost half of global consumption, demand for oilcakes and meals is expected to stagnate due to the anticipated slow down in livestock production and continued competition from competitively priced feed grains. In the EC, consumption of locally produced rapeseed and other meals is likely to increase at the expense of imported soybean meal. In countries in Far East Asia, growth rates of consumption are expected to revert to the levels recorded prior to the economic crisis.

Stocks of oilseed products to fall as global demand is likely to exceed global production

Based on the above supply and demand forecasts for the 1999/2000 season, end-of-season stocks of oils and fats are forecast to fall slightly from last season's level as the level of utilization is expected to exceed that of production. The stocks-to-utilization ratio is likely to fall slightly compared to the previous year, thus contributing to upward pressure on international prices for oils and fats. Also global stocks of oilcakes and meals are anticipated to decline slightly during 1999/2000 as global demand is predicted to exceed global production. The stocks-to-utilization ratio for oilcakes and meals is expected to fall by the end of the season, thus contributing to a recovery in international prices for these products. With regard to individual commodities, the projected supply and demand situation is expected to lead to a drop in stocks of soybeans and derived products, while inventories of rapeseed and products could rise.

Healthy rise in trade of oils and fats but reduced growth in oilcakes and meals

In 1999/2000, world trade in oils and fats (including the oil contained in oilseeds traded) is anticipated to increase further to 48.5 million tonnes, exceeding last season's level by over 4 percent. Relatively low international prices for oils and fats, together with rising demand in the major importing regions, are expected to stimulate trade in oils and fats. The pattern of imports is expected to be similar to previous years, with three-quarters of the expansion originating in Asia. Imports of oils and fats (including oil contained in imported seeds) by China and India are forecast to climb further, reaching 5.2 and 4.9 million tonnes respectively. China's policy to cover an increasing portion of its oil requirements by importing oilseed rather than oils is expected to continue. Also in India, where the bulk of import demand continues to be met by oil purchases, the government recently introduced measures to encourage seed importation, in an effort to support domestic crushers. Other countries in the region may also follow this trend. In South America as well as in CIS countries, the volume of imports is expected to be slightly below average, while in Western Europe and North America purchases are likely to recover from last season's reduced level. On the export side, most of the increase in shipments is expected to occur in Asia. The recent recovery in shipments of palm, palmkernel and coconut oil (after weather related declines in overall supplies and exports in the year 1998) is likely to continue this year. Combined exports of Malaysia, Indonesia and the Philippines in the three tropical oils are forecast to exceed 15 million tonnes, thus accounting for close to one third of global shipments of oils and fats this season. Among soft oils, soyoil shipments are expected to fall in 1999/2000 as import demand is likely to shift to rapeseed and its oil, partly because of the above mentioned tendency of some major importers to prefer seed imports over oil purchases to cover domestic oil requirements. Furthermore, ample rapeseed oil supplies and the ensuing price discounts vis-à-vis competing oils are expected to contribute to record rapeoil shipments by the three main suppliers, Canada, the EC and Australia. Although unlikely to lead to significant changes in the overall trade pattern, some exporting countries are likely to continue their efforts to offer certified GMO-free oilcrops and oilcrop products. In Australia, for example, production and export of non-GMO rapeseed seems to receive particular attention.

World trade in oilcakes and meals (including the meal contained in oilseeds traded) is expected to grow at a reduced rate of 2 percent in 1999/2000, compared to an average rate of 6 percent in the three preceding seasons. Factors contributing to this slow down include reduced growth in global utilization, including in some major importing countries, caused by price developments in the related markets, especially the expected rise in international prices for oilcakes and meals. Total imports of oilcakes and meals are forecast to exceed 89 million tonnes. The last years' rise in soyameal trade is likely to come to a halt during this season, while shipments of rapeseed meal are forecast to climb to a record level. Purchases by the world's largest import market, the EC, are forecast to fall due to stagnating livestock production and abundant availability of meals (in particular rapeseed meal) and other feedgrains of local origin. Asian countries are expected to account for the bulk of the increase in global imports, as the resumption of economic growth in the region has stimulated livestock production and thus demand for meals. As to exports, last season's surge in soybean and meal shipments from South America at the expense of US exports is not expected to repeat itself in 1999/2000. In fact, South American shipments are anticipated to fall short of last season's record level by over one million tonnes. The decline in export availabilities is mainly related to the anticipated drop in production. In Brazil, additional factors include sustained domestic demand for oilcakes and meals and the fact that - after enhancing exports in 1998/99 - last year's currency devaluation has led to an increase in production costs in the current season. Soymeal export availabilities are also expected to drop in India, which is faced with lower production and higher internal demand. By contrast, a recovery of soymeal shipments (including the meal contained in soybean exports) is expected in the United States, where large inventories should allow exporters to gain back market shares lost last year.